Top Bank of Uganda management has warned government against looming debt distress as the public debt crosses the 80 trillion shilling mark and the 50 percent threshold of GDP.
The Deputy Governor Machael Atingi-Ego has spelt it out to Parliament’s Finance Committee that servicing the foreign component of the of the debt now at 59 percent of the debt (47 trillion) is already dangerously eroding the foreign reserves, which have dropped from $4.54 billion at the end of April 2022 to $3.65 billion at the end of October. He warned that any further borrowing will cripple the government’s capacity to continue serving the foreign debt.
Besides debt servicing, the Central Bank will no longer be able to stabilize the shilling by intervening in the foreign exchange market which it does by selling or buying forex in the market.
The governor further warns that the debt service/export ratio is also projected to increase beyond the 20 percent threshold between FY 2021-22 to FY2025-26.
Atingi-Ego says that in FY 2022-23, the government imports plus foreign debt servicing require about $1.8 billion, owing partly to the to the maturity of non-concessional loans.
The Central Bank has thus strongly advised the government to suspend non-concessional external borrowing that has debt servicing obligations that would commence in less than five years.
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